How Do You View Kuchai Developments

Look at the chart. If you peruse the financial results, no one would bother with the company. Companies like Kuchai should not be listed anymore as its an asset holdings company. The good thing is bulk of the assets are now valued on the upside of their respective cycle. It might be a good time to finally cash out. Not that the owners need the money, the family is one of the richest in Singapore anyway. But its time to streamline their holdings.

To note, the company owns a shophouse at Emerald Hill Road, Singapore. In addition, KUCHAI has a 26% equity stake Sg. Bagan.

Sg. Bagan owns and cultivates approximately 2,600 acres of oil palm plantation in the District of Machang, Kelantan. Sg. Bagan is also engaged in the long term portfolio investment in securities.

Funnily enough, for a sleepy counter like Kuchai this would be the second time I am writing about the stock. Back in March I wrote on a few companies that presents itself as a 'value trap', lol. Good to read again:

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Kuchai Development

Its basically a holding company. Its got a substantial stake of 26% in palm oil Sg Bagan and a highly attractive 3m shares of Great Eastern (traded now btw S$15-16). All in the total net asset value for Kuchai Development is around RM260m. It has 120.7m shares (50 sen), which makes for a NAV of RM2.15. Guess what's the share price??? Its just 80 sen. How to go wrong?

Technically you have to outlive the owners or wait till they finally decide to do something with their shares. When looking at a value company, the first thing to check is the shareholdings level. For Kuchai:
Kluang Rubber 41.9%
Sg Bagan 9.38%
Lee Foundation 4.18%
Kota Trading 1.77%

The top 3 are basically the same group of people and they made doubly sure they have more than 50% as that will stop anyone thinking of raiding the company. So if someone comes along and collect shares and then make a G.O. at RM1.60, he/she will not succeed as long as the controlling shareholders do not sell. They will probably sell if someone comes along and offer a substantive premium to NAV, say RM2.60-2.80 or thereabouts. The value is in the NAV and then the listing vehicle as a value add.



Once the owner controls more than 50%, there's very little you can do. If you can locate a value company and there is ample free float, plus the controlling shreholder holds less than 40%, then I bet you that many vultures will be cirlcling to take over the company, thus narrowing the gap between NAV and the share price.

It might be OK to hold on forever if the company pays a decent dividend, but in Kuchai's case it paid 0.8 sen in 2008 and 0.45 sen in 2009. If you take the share price of 80 sen, that works out to be a paltry dividend yield of 1% and 0.56%. Really no incentive to own this stock.

I really think that there is a strong case for the SC to come down hard on Kuchai because it does not resemble a normal company with on-going businesses. Its strictly a holding company. It does NOT allow shareholders to participate in the growth of the company, it just holds the stakes forever. It does NOTHING to extract value from their inherent value. Some may say so is Berkshire Hathaway - in Buffett's case, he actively manages his positions, positions will be sold once they reach above fair value and vice versa. Kuchai's position makes a mockery of being a listed counter - anyone in their right mind would be 100x better off to invest directly into Great Eastern or Sg Bagan - there is absolutely no value to its existence.
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After my posting 6 months back, this might be the trigger for something big. Kuchai does not really move into speculative or syndicate plays. One day could be an aberration but 3 or 4 continuous days would mean something else. If I was the controlling shareholder, and I want to streamline my holdings. I will be doing a General Offer. RM285m / 120m ~ RM2.37 or thereabouts.



Hence a G.O. would have to be close to the NAV. Your guess is as good as mine, RM1.80 to RM2.10 could be reasonable. I find it hard to think of any other reason for the price movements other than a G.O. Other possibilities could be selling their 26% in Sg. Bagan, which is close to realising the full value of the company anyway.

This is not a recommendation in any way, just trying to make sense of the stock movements. Kuchai is helmed by very rich people, no syndicate play is likely or necessary. If I were to make a wild and outrageous guess ... how about ... using Kuchai as the backdoor listing vehicle for Great Eastern Malaysia???!!! Just an absolutely wild guess, but they have the "same shareholders" really!

Why then the assiduous collection? Answer that, you could have a profitable trade here.